It's a logistic logjam

Shalini Singh, TNNOct 8, 2004, 01.41am IST

This happens only in India. Though Railway ministry guidelines from as far back as 1994 are in place allowing the "setting up of rail-linked Inland Container Depots (ICDs)" to parties other than its own offspring, Container Corporation of India (Concor), in reality, proposals to set up independent rail sidings along their ICDs from at least four companies, including two government-owned firms Pipavav Railway Corporation Ltd (PRCL) and Central Warehousing Corporation (CWC) are pending approval for the last two years.

The Railways' unbending stance has forced the ministry of commerce to draft a new policy on opening up containerised rail transportation for players other than Concor. This will be presented in due course to the Cabinet for approval.

Concor, a 63% of Indian Railways, is so far the only provider of containerised goods transport by rail in India with an over 31% share of Exim cargo. The sector has witnessed a CAGR of 15% over the period 1994-03, outpacing the 6% CAGR growth in port traffic in the same period.

Growth in the Northern hinterland has been even more dramatic: 22% y-o-y over the last three years, with Concor accounting for a whopping 90-95% share of the 5 lakh TEU throughput recorded last year (despite the fact that there are four more inland container terminals or ICDs in the North).

According to a Rites survey, container traffic is projected to reach 8,64,000 TEUs by 2007-8 in Delhi alone. Additionally, India's container penetration factor is just 50% as against 80% in western countries. No surprise then, that other players in the logistics segment have been increasingly pushing for a piece of the action over the last two years.

However, a "level playing field with Concor" is being sought, which means that new entrants want to be treated at par with Concor in terms of rates and other conditions. The first war cry for marketshare was heard in December 2002, when P&O Ports announced that it would, along with four major shipping lines, set up a parallel container service principally aimed at breaking Concor's monopoly.

Shipping lines and port operators like P&O have been bargaining with Concor for improved service and reduced rates for carrying containers from the north to southern ports, but have found the going tough. Now these companies are trying to rope in the commerce ministry and shipping ministries to put pressure on the Railways to ensure that Concor is no longer protected.

Indian Railways allows a 19% discount on the haulage charge for wagons owned by Concor. Over long distances, rail transport is cheaper and usually faster than road. This has helped Concor win market share which currently stands at over 31% for Exim cargo. Concor's share in domestic cargo is not that impressive, mainly because of less available rolling stock.

Concor also enjoys a significant competitive advantage and economies of scale due to scheduled services between major traffic centres, its nation-wide terminal network and large base of rolling stock. These equate to formidable entry barriers into rail-based services.

Other players say Concor will no longer be able to single-handedly accommodate the huge growth in volumes, and this justifies allowing others to supplement its services.

A backlog of over 10,000 import containers at Jawaharlal Nehru Port Trust (JNPT) over the past few months, forcing a restriction on imports from 13/9/2004 for north-bound ICDs validates this argument.

"Concor has only 10% of the total surface transport cargo which is containerisable, which demonstrates that the basket is large and needs multiple players to maximise the full potential," says a potential competitor.

"The Railways are down to a 40% share of the total cargo movement today from 80% in 1952 because of exorbitant freight rates. They are the biggest losers. They need to help drive rates down and competition is the only way," says another.

If things work out, global players like P&O Ports and Maersk are likely to jump into the segment and have the money to spend on creating the kind of network Concor already has. Else, they may be smarter and wait for Concor to be privatised and buy it rather than spend on creating new infrastructure.

Till then, the largest domestic threat to Concor could be CWC which boasts of being the largest public sector warehousing company in the world with volumes in general cargo crossing 6.3 million tonnes.

CWC has invested Rs 150 crore to set up an ICD with a capacity of 60,000 TEUs a year at Loni near Ghaziabad. Permission to rail-link Loni with Mumbai has been pending with the Railways for two years for no apparent reason.

Likewise with permissions for PRCL. PRCL, also partly owned by the Railways is targeting volumes of 70,000 TEUs a year at Pipavav Port by 2006 and wants to develop a Pipavav rail corridor as an alternative to the existing Concor-run Mumbai-Delhi corridor.

For this, it wants to initially tie up with Concor to use their ICDs and wagons along the rail route but also add value to customers in terms of add-on services like credit facilities, on-line information on the status of cargo, door-to-door delivery etc.